UPDATE 1-Brazil cenbank keeps hawkish tone ahead of rate decision

Tue May 21, 2013 3:52pm EDT

BRASILIA May 21 (Reuters) - Brazil's central bank chief Alexandre Tombini said on Tuesday that policymakers will do whatever is necessary to bring down inflation, maintaining a hawkish tone ahead of next week's monetary policy decision.

Speaking to lawmakers at a congressional committee, Tombini said fighting inflation is key to bolstering confidence in the Brazilian economy, which is showing signs of picking up pace with stronger investment this year.

"Once again, the central bank remains vigilant and will do what is necessary, in a timely manner, to put inflation on a declining path in the second half of the year and to ensure that trend remains in place next year," said Tombini, repeating the same language he used last week in a speech in Rio de Janeiro.

Yields paid on Brazil's interest rate futures surged last week after Tombini pledged to bring down inflation this year and next, as investors started betting that policymakers will speed up the pace of monetary tightening.

The bank hiked its benchmark interest in April for the first time in nearly two years. It raised the Selic rate by 25 basis points to 7.5 percent in an attempt to curb inflation that had broken the ceiling of an official target range.

The central bank monetary policy committee is scheduled to announce its next rate decision on May 29.

Tombini also said the bank may use derivatives to reduce volatility in the foreign exchange market. The central bank currently intervenes in the foreign exchange market by offering traditional and reverse currency swaps, contracts that emulate, respectively, the sale and purchase of dollars in the futures market.

At 4:30 p.m. (1530 ET), Brazil's currency, the real, traded at 2.0365 per U.S. dollar, 0.13 percent stronger than Monday's close.

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